Spreading wings

Reading Time: 4minutesEmirsyah Satar, President and CEO of Garuda Indonesia

Garuda is Indonesia’s flag carrier and has a market value second behind Singapore Airlines in Southeast Asia. Inside Investors met the carrier’s president and CEOEmirsyah Satar to learn more about the future challenges that lie ahead for the airline and its strategy to prosper.

Q: Can you give a brief history of Garuda and yourself?

A: Garuda was established in 1949. We were a state-owned company, holding a monopoly position until early 2000 when the government deregulated the industry. In the past, the only major airlines in Indonesia were Garuda and Merpati, which flew pioneer routes. There were three smaller private airlines, Mandala, Buraq and Zambati. Until 2000, only Garuda could fly jets, while the others flew propeller planes. After the government deregulated the industry, Garuda started facing more competition. I came to Garuda as a CFO during the Asian crisis in 1998, from a job as a banker in Hong Kong. I served for five years and restructured Garuda’s debt, which was about $1.8 billion at revenues of about $1.7 billion. Then I left Garuda, but returned in 2005 as the CEO as per request of the president. I developed a five-year business plan for the period until 2010 to transform the company. The first two years were the survival stage, of which 2006 was the consolidation year, and 2007 the actual survival year. We have been very disciplined to execute the plan.
There were three main issues: management, organisation and operation. Garuda, at that time, was always late, the aircraft were old, the service was substandard and 9 out of 10 routes were losing money. Financially, the debt was overdue, and negative equity leverage was high. I put a management team together and said: We have to define where we want to be and what we want to do. And we should not blame the problems to the government or the shareholders but to ourselves.
We also had to agree on the fact that we were no longer in the transport business, but in the travel service business. In transport business, you bring one person from one place to another. But Garuda has to be in the service business and be customer-oriented. We have been competing with newcomers who started with a clean slate. We cannot compete with their pricing but with service and convenience.
The following years after survival were called the turnaround stage, and the final stage was the growth stage with the target to have an IPO for Garuda.

Q: Human capital is one of the most important elements of your business. How did you manage to keep the most important staff members who can envisage and communicate that growth message to the employees?

A: We have been overstaffed before. We had about 6,600 employees and reduced this number by 1,000, managing to retain the good staff and communicate to them our targets for the next 5 years. I told them that their compensation would be based on three principles. First, on meritocracy. In the past everyone got the same bonuses, that has now been changed. Secondly, everyone would get paid as if each of them had a market value. And thirdly, we based the compensation on the company’s ability to pay good salaries. The key for this is communication and transparency.

Q: It sounds very good internally, but what about the external perception?

A: Historically, Garuda got a stigma after certain events in 2007 and suffered a ban from European flight authorities. When we got our new airbuses, flights to Europe resumed in 2009. We have not really finished our image building yet. However, we did get the world’s best regional airline award in 2012.

Q: What is the strategy for Garuda’s fleet?

A: As of today, we have 81 Garuda aircraft and 13 for Citilink. By 2015, we plan to expand to a fleet of 194 aircraft in a quantum leap. 144 will be for Garuda and 50 for Citilink. Last year, we carried 17.1 million passengers. By 2015, we aspire to carry 29 million with Garuda and 16.4 million with Citilink, which makes 45.4 million in total. We believe that our domestic capacity will double by 2015. International tourism arrivals are growing. Most go through Kuala Lumpur or Singapore, but we are ordering 10 Boeing 777s to accommodate the passenger volume expected for Jakarta. Low cost is another driving force for the business. That’s why we are splitting Citilink into a totally separate entity and rejuvenate its fleet. In late 2005, the average age of the fleet was 11.3 years, now it’s only 6.4 years, which is on par with Hong Kong’s Cathay Pacific.
Another strategy is about branding. We have launched the “Garuda Indonesia Experience” slogan. Indonesia is known for its hospitality and diverse culture. We want to bring these elements together and integrate it into our service, the interior of the aircraft, the batik for the cabin crew, even the music and of course the food. We are 60 per cent into realising this plan.

Q: Where do you see the main growth areas for Garuda?

A: Australia is one of the markets we are targeting, and we already got a good reputation. We received an award for the best international airline there, surpassing Emirates and Air New Zealand. Another potential market we see is China. Japan and South Korea have always been long-time markets for us. Another market is the Umrah market, which is huge for us with direct flights from Jakarta to Jeddah. We are also expanding our network to Europe, namely to Amsterdam, which we already have added to our direct flight routes. London, Paris, Frankfurt and maybe Milan will follow. We are also expanding our network through alliances by joining Sky Team. The US we will be targeting by 2015, focusing on Los Angeles and San Francisco.
Regarding human capital, we need the right quality and the right quantity. Over the last five years, we have improved our productivity on average by 15 per cent per annum. We increased the number of flights, but at the same time retained the same number of staff while investing in IT. I always tell my team we need to improve the business process.

Q: Put in a nutshell, what would be the main objectives you wish to achieve over the next years on the international stage?

A: Joining the global alliances is one of the large topics. Right now, Garuda is under four-star sky charts. We want to aim for a five star.

Q: When the call came in 2005, did you feel happy to take it?

CEO: I wanted to contribute and I wanted the challenge. I like challenges. From 2005 to 2010, when we executed our five year plan, we used to be a 30 handicap golfer. We transformed everything during this time, and now we are a 16-18 handicap golfer. We are not very good yet, but we aren’t bad too. The issue is consistency. We hired consultants to achieve growth. Good is not good when much better is expected. Our market capitalisation is steadily improving. We are at about $1.7 billion now, higher than Malaysian Airlines and Thai Airways and even Air France-KLM.

Reading Time: 4minutesEmirsyah Satar, President and CEO of Garuda Indonesia

Garuda is Indonesia’s flag carrier and has a market value second behind Singapore Airlines in Southeast Asia. Inside Investors met the carrier’s president and CEOEmirsyah Satar to learn more about the future challenges that lie ahead for the airline and its strategy to prosper.

Q: Can you give a brief history of Garuda and yourself?

A: Garuda was established in 1949. We were a state-owned company, holding a monopoly position until early 2000 when the government deregulated the industry. In the past, the only major airlines in Indonesia were Garuda and Merpati, which flew pioneer routes. There were three smaller private airlines, Mandala, Buraq and Zambati. Until 2000, only Garuda could fly jets, while the others flew propeller planes. After the government deregulated the industry, Garuda started facing more competition. I came to Garuda as a CFO during the Asian crisis in 1998, from a job as a banker in Hong Kong. I served for five years and restructured Garuda’s debt, which was about $1.8 billion at revenues of about $1.7 billion. Then I left Garuda, but returned in 2005 as the CEO as per request of the president. I developed a five-year business plan for the period until 2010 to transform the company. The first two years were the survival stage, of which 2006 was the consolidation year, and 2007 the actual survival year. We have been very disciplined to execute the plan.
There were three main issues: management, organisation and operation. Garuda, at that time, was always late, the aircraft were old, the service was substandard and 9 out of 10 routes were losing money. Financially, the debt was overdue, and negative equity leverage was high. I put a management team together and said: We have to define where we want to be and what we want to do. And we should not blame the problems to the government or the shareholders but to ourselves.
We also had to agree on the fact that we were no longer in the transport business, but in the travel service business. In transport business, you bring one person from one place to another. But Garuda has to be in the service business and be customer-oriented. We have been competing with newcomers who started with a clean slate. We cannot compete with their pricing but with service and convenience.
The following years after survival were called the turnaround stage, and the final stage was the growth stage with the target to have an IPO for Garuda.

Q: Human capital is one of the most important elements of your business. How did you manage to keep the most important staff members who can envisage and communicate that growth message to the employees?

A: We have been overstaffed before. We had about 6,600 employees and reduced this number by 1,000, managing to retain the good staff and communicate to them our targets for the next 5 years. I told them that their compensation would be based on three principles. First, on meritocracy. In the past everyone got the same bonuses, that has now been changed. Secondly, everyone would get paid as if each of them had a market value. And thirdly, we based the compensation on the company’s ability to pay good salaries. The key for this is communication and transparency.

Q: It sounds very good internally, but what about the external perception?

A: Historically, Garuda got a stigma after certain events in 2007 and suffered a ban from European flight authorities. When we got our new airbuses, flights to Europe resumed in 2009. We have not really finished our image building yet. However, we did get the world’s best regional airline award in 2012.

Q: What is the strategy for Garuda’s fleet?

A: As of today, we have 81 Garuda aircraft and 13 for Citilink. By 2015, we plan to expand to a fleet of 194 aircraft in a quantum leap. 144 will be for Garuda and 50 for Citilink. Last year, we carried 17.1 million passengers. By 2015, we aspire to carry 29 million with Garuda and 16.4 million with Citilink, which makes 45.4 million in total. We believe that our domestic capacity will double by 2015. International tourism arrivals are growing. Most go through Kuala Lumpur or Singapore, but we are ordering 10 Boeing 777s to accommodate the passenger volume expected for Jakarta. Low cost is another driving force for the business. That’s why we are splitting Citilink into a totally separate entity and rejuvenate its fleet. In late 2005, the average age of the fleet was 11.3 years, now it’s only 6.4 years, which is on par with Hong Kong’s Cathay Pacific.
Another strategy is about branding. We have launched the “Garuda Indonesia Experience” slogan. Indonesia is known for its hospitality and diverse culture. We want to bring these elements together and integrate it into our service, the interior of the aircraft, the batik for the cabin crew, even the music and of course the food. We are 60 per cent into realising this plan.

Q: Where do you see the main growth areas for Garuda?

A: Australia is one of the markets we are targeting, and we already got a good reputation. We received an award for the best international airline there, surpassing Emirates and Air New Zealand. Another potential market we see is China. Japan and South Korea have always been long-time markets for us. Another market is the Umrah market, which is huge for us with direct flights from Jakarta to Jeddah. We are also expanding our network to Europe, namely to Amsterdam, which we already have added to our direct flight routes. London, Paris, Frankfurt and maybe Milan will follow. We are also expanding our network through alliances by joining Sky Team. The US we will be targeting by 2015, focusing on Los Angeles and San Francisco.
Regarding human capital, we need the right quality and the right quantity. Over the last five years, we have improved our productivity on average by 15 per cent per annum. We increased the number of flights, but at the same time retained the same number of staff while investing in IT. I always tell my team we need to improve the business process.

Q: Put in a nutshell, what would be the main objectives you wish to achieve over the next years on the international stage?

A: Joining the global alliances is one of the large topics. Right now, Garuda is under four-star sky charts. We want to aim for a five star.

Q: When the call came in 2005, did you feel happy to take it?

CEO: I wanted to contribute and I wanted the challenge. I like challenges. From 2005 to 2010, when we executed our five year plan, we used to be a 30 handicap golfer. We transformed everything during this time, and now we are a 16-18 handicap golfer. We are not very good yet, but we aren’t bad too. The issue is consistency. We hired consultants to achieve growth. Good is not good when much better is expected. Our market capitalisation is steadily improving. We are at about $1.7 billion now, higher than Malaysian Airlines and Thai Airways and even Air France-KLM.